Compliance with overtime rules has never been more challenging. The U.S. Department of Labor (DOL) not only ramped up wage and hour enforcement efforts, but it also proposed historic changes to the overtime rules in the Fair Labor Standards Act (FLSA) that would make millions more U.S. employees eligible for overtime. To further complicate matters, employee class-action litigation is costing employers hundreds of millions of dollars annually for compliance failures and potentially even more in bad press.
The two main reasons for violations are misclassification of employees and failure to track and pay overtime properly.
DOL Stepping Up Enforcement Efforts
The Obama administration made boosting the wages of U.S. workers a priority, not only through proposing an increase in minimum wage but also through modification of overtime rules. The DOL's proposed changes to the FLSA would raise the threshold of overtime exemption from $23,600 annually to $50,440 annually. What this means is that all employees making less than $50,440 would now be eligible to receive overtime pay for any work over 40 hours per week. The end result would be millions more employees reclassified from exempt to non-exempt status and, thus, qualifying for overtime. Even without this change, the possibility for misclassifying employees and, thus, not counting overtime hours exists. Employers need to reassess their workforces and better manage their overtime.
In the realm of enforcement, the DOL made strong outreach efforts through its P3 Initiative: Plan/Prevent/Protect, which compels employers to take the initiative to proactively comply with FLSA provisions, such as overtime rules. Under the P3 Initiative, employers have an ongoing obligation to find and fix violations of the FLSA and cannot wait for a DOL audit to find non-compliance. With the final P, Protect, employers have an obligation to protect their workers from FLSA violations.
Four Suggestions to Enhance Your Compliance Efforts
- Review employee classifications regularly to make sure they're compliant with FLSA. Non-exempt employees have the right to receive overtime pay when they work more than 40 hours per week, while exempt employees typically do not. Under the current overtime rules, employees can be classified as exempt if (1) they make over $23,660 annually, (2) they are paid on a salary basis, (3) their duties are executive, administrative or professional. Of course, when the proposed modifications to the FLSA overtime rules take effect, the exemption threshold would jump to $50,440 and the "duties test" may or may not change.
- Implement an automated system to track employee time, and develop strict policies to support compliance. You may want to combine strong technology and clear, consistent communication in order to help optimize your ongoing overtime compliance efforts. Sophisticated, effective time-tracking software is readily available. But be clear with employees about time-related policies. For example, tell them working off the clock is strictly prohibited and must be reported to management.
- Consider rounding your practices. The best practice is track employees' time to the minute and pay employees accordingly. If employers decide to round time, they should keep in mind that employees often work odd amounts of time. Employers could choose to round time based on five-, 10-, or 15-minute increments, for example. If you only round time down but not up, it could be detrimental to the employee. The DOL allows rounding because they assume that it will balance out in the end, favoring neither employers nor employees. So if you use rounding, to ensure that its nuetral in its application.
- Be careful about automatic time deductions for breaks and meals. The best practice is for employees to clock in and out for any break (rest or meal) that is 20 minutes or longer. If an employee works through her meal break, but you automatically deduct that time, you may find yourself subject to a claim for a missed meal period or an overtime claim. Even if the employee doesn't tell you she's working through lunch break, the DOL deems you liable to compensate the employee. Inform employees that they must take their rest and meal breaks timely. Ensure that employees know that if they feel they absolutely must work through a break, they must communicate that to a supervisor ahead of time.
Overall, employers would do well to adopt the DOL's P3 approach when it comes to compliance with overtime rules. The more proactive you can be in following the FLSA regulations, the more preventive you'll be in avoiding problems like wage and hour litigation and DOL enforcement actions.
For additional information, view the webcast: Avoiding Common Wage and Hour Violations.